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Lets answer the question quickly and effectively! The answer is no! It is not a myth. The truth is that anyone can get approved these days with a job and minimal money out of pocket. The next question is: "Why do so many people have such a hard time?" I will go through a few examples and hopefully it will give you the information you need to shop more effectively.
Reason:
#1: The dealership does not want to finance you. This is probably the second highest reason but the one that most concerns you. How do I mean? Well all dealerships work with banks that will finance almost any situation, the problem is that dealership does not want to give their cars away for very little to no profit. And can we blame them?? Not too much, after all, just having the lights on costs them money. The banks actually charge the dealership a "fee" to finance the customer. That way they can eliminate all the risk on their end. This eats the profit of the car up unless the buyer can do what?? Come up with money down. This is going to be a reoccurring theme. I know it seems like dealers ask and assume you have money down, but in the eyes of the banks, if you're not willing to give them good reason to loan you money by paying for some of the car upfront, then why should they take a risk and give you money? So in the end its all about bringing some sort of down payment with you. Your old car that doesn't have a lien on it, or just cash money. This is the driving force.
#2: "upside down" Customers. This is #1 reason why you wouldn't be approved. Lets be honest everyone. We are all extending our loans longer and longer to stay in budgets and while it meets our payment needs, 8 out of 10 people owe more than their car is worth. Its just the nature. Now combine that with some shaky credit and we are in a no win situation. Imagine you are trying to borrow tools from your neighbor and you have borrowed many tools and either you gave them back in poor shape or never at all, in a way you have negative equity with your neighbor and the chances of them helping you out are very slim. This is the same when buying your new car. If you owe $10000 and its worth $7500, you are now asking the bank to finance your new car for $2500 more than the asking price. That's a big risk to a bank, so if you have good credit, this shouldn't be an issue. But for those who do not.. you are stuck. Without a good chunk of money down you are staring a decline right in the face! How do you change this???
A: Start paying the higher payments with the lower amount of years. Try financing 48 months. Now will your payments be $100 or $150 higher sure? But it sure beats being $2500 upside down which will cost you an additional $50 or more a month on your next loan. Stay ahead of the game! Press the limit and put yourself in the right situation. People say they will keep their cars "forever" And then 2 years later something has changed and they need a different car. This raises payments! Now if you can just shorten your term and raise your budget you can beat this game and be way on top when you go to trade it in!!
B: Always look to put 20% down. Now I completely understand money is tight and we can't always do this, so I would at least revert to the months. But when you put the money down you are putting yourself in a spot where you are above water the entire length of the loan. Above water means your car is worth more than you owe! Smart!! And combine this with shorter terms you are way ahead.
#3: HAVE A JOB!! Yikes everyone! If you do not have a job, a full time job, its not in your best interest to try and car shop. Now I get it, everyone needs a car. So if you can only work part time because of your living situation, money down is huge once again! The more you make, the more the bank is willing to give you for a loan. It is simple math! If you make $30000 a year, the bank has a number they would like you to stay at. This goes up and down depending on your income level.
#4: Lastly and reoccurring: MONEY DOWN. It is needed. Cars are a depreciating asset. Money down to a dealership and to a bank is king. If you have the worst credit on earth but you have some money to put down. You are in business!!
Little tip! DO NOT do buy-here pay-here.. OMG It doesn't help your credit, you are getting charged huge rates, and they can take the car back on the first slip up! Do yourself a favor and get some real financing!! No scams man!
I would just like to say again, where I am doing my business. I guarantee I can help. I do the things that most places won't. I would say though, money down helps! If you bring some for me, I will do the rest for you! Have a great day!!
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